TelcoFinancial Analysis

May, 1993

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Approach

• Evaluated financial aspects of XXXX by measuring against industry competitor and best in class positions

• Analyzed XXXX specific financial information available for 1993 and XXXX formation

• Reviewed critical success factors and 1993 goals including, among others, XXXX Silver Bullets and Project Prioritization criteria

• Reviewed budgeting process and key performance indicators

• Reviewed cost components of the business

• Identified “Next Steps” for funding and Business Case development

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Today, XXXX & The Alliance Generate $14B in Owner Company Revenue

We shape and maintain the industryWe shape and maintain the industrySource: 1992 Annual Reports

XXXX

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In Turn, XXXX Accounts for Only 5% of Owner Costs

Source: 1992 Annual reports

1992 Owner Company Product Expence $10.8B

1993 Owner Company XXXX Funding $492MM

Ongoing market support

Backhaul

Billing

R&D

ProgramCost

Maintenance

Adv & Promo Equipt. Service

Provisions

Exceptions

XXXX PD&I

5%

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In 1998, the Alliance Seeks to Generate $18B in Revenue

XXXX products are the base for this aggressive growth

XXXX products are the base for this aggressive growth

Source: Nine 1992 Owner Company Annual Reports

Annual Growth Rate in Revenue ($ Billions)

1991 1992 1993P 1994P 1995P 1996P 1997P 1998P

14.30

14.70 14.70

15.30

15.96

16.63

17.32

18.05

2%

2.5% 0%

4.2%

4.2%

4.2%

4.2%

4.2%

168% ofmost recent

historical year

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Competitors Are Taking Aim At Alliance Core Businesses

Potential Impact of MarketErosion on Revenues

Revenue @ 5% @ 15%1993 $14B <$700M> <$2.1B>1998 $18B <$900M> <$2.7B>

6 Yr. $84B <$4.2B> <$12.6B>

StentorAlliance

SRCI

CAPs

Rogers

Sprint

AT&T/Unitel

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XXXX/Gemini CP/PD A&D - Confidential

Current Project Funding Suggests an Investment Strategy That Is Narrow and Short Term

1993 XXXX PortfolioRevenue by Service

Total Revenue $537MM

Ability to maximize future revenue is limited by our portfolio structureAbility to maximize future revenue is limited by our portfolio structure

Source: PMO database; Gemini analysis

1993 XXXX PortfolioInvestmment by Service

Total Investment $351MM

Voice

68%

OSS

15%

Planning

8%

Marketing

7%

Other

2%

Voice

72%

Wireless

1%

Marketing

8%

Data

6%

OSS

4%

Other

9%

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Contributions, Funding and Project Costs are Balanced

NEWFOUNDLAND TEL

MT&T

ISLAND TEL

NBTEL

BELL

MST

SASKTEL

AGT

BC TEL

NOR. TELECOM % DND

Common

Effective

Unique

Bell Canada clearly drives XXXX programming Bell Canada clearly drives XXXX programming

Source: XXXX White Book 5/93; XXXX Management Presentations; XXXX Program Components

Owner CompanyContributions

ProjectedProject Funding

ProjectedProject Costs

Total Contributions $492MM Total Funding $480MM Total Expense $492MM

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Labor, R&D Contract Costs and ODA Drive XXXX Expenditures

1993 XXXX Expense $528MM 1993 XXXX ControllableExpense $501MM

95% of expense is controllable95% of expense is controllable

Source: XXXX 1993 YTD Income Statement

2% 2% 3% 3%1%1%

8%

3%1%

10%

5%

6%2%11%

5%4%

6%

3%

24%

2% 2% 3%3%

1%1%

8%

3%1%

10%

5%

6%2%11%

5%4%

6%

3%

24%

ADMINISTRATION PROJ. CONT. BELL EXT. PRGM SERV. REAL ESTATE DEP. FURNISHINGS

DEP. LAB EQUPT. CONTRACT AD & PROMO R&D MATERIAL R&D CONTRACT

TRAVEL/MISC. CUSTOM FUNDING RESERVE ODA PMG-8

TELECOM PENSIONS DATA PROCESSING/IS SALARY

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50% of XXXX Employees Participate in The Product Development Process

Original projections of 64% suggest higher support requirements

321 5

4

4

5

21

3

21

3

21

3

Assessment & Feasibility Development Standardization Deployment & Use

Executive Leadership And Vision

Culture

Communications

Roles & Responsibilities

Strategic Alliances/Development Partnerships

Owner Management

ConceptVisionPlanningFit

Operation &Maintenance

Support

Viability

IntroductionDesign Test Checkout&

Installation

Requirements Performance

EconomicsSpecifications

Organization Structure

Performance Measurements SystemsFinancial Service/Support Groups

Engineering and Research

Marketing (Domestic and International)

Business Planning and Support

Supporting Operational Systems

Rates and Policy

Implementation

0.16%

$0.26

2.28%

$3.9

6.38%

$10.8

0.99%

$1.6

0.47%

$0.78

0.62%

$1.1

2.49%

$4.1

7.0%

$11.8

9.65%

$16.3

Aggregate PD&I: 48.91%Aggregate Support: 48.76%Other: 2.33%

* 1928 of 2002 employees were found (3% are unaccounted for)** Average cost of employee = $87k, total cost of employees is $168.5MM

= % of employees in segment*

= employee cost per segment ($MM)**

21.06%

$35.5

10.01%

$16.9

20.07%

$33.8

18.83%

$31.7

Portfolio Value $630MM+

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Our Funding/Budgeting Process is Disconnected

Bottom Up

XXXX BudgetProcess

Top Down

Owner CompanyContribution

StrategicIntent &Portfolio

GAP

A top-down process allocating funds via strategic intent and portfolio approach should connect the process

A top-down process allocating funds via strategic intent and portfolio approach should connect the process

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XXXX/Gemini CP/PD A&D - Confidential

Key Performance Indicators & Measures Are Moving Targets

Clear, concise performance measures must be determined Clear, concise performance measures must be determined

Formal Measures• Ability to make budget

Informal Measures• Contribution to owner revenues• XXXX portfolio NPV

Prioritizationof Projects

Project Measures• Cumulative NOR• Probability of success• Profitability of markets/services• Contribution to service quality• 5 year average market growth rate• Cumulative cost savings/NPV

SilverBullets

Break even timeStrategy/Portfolio mix

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Current State of Business Raises Concerns With XXXX’s Ability to Support These Owner Company Challenges

• A $36M gap between funding and project expense still exists

• Additional over-runs in excess of $25M were identified

• Underspending on key programs is a key issue

• Measures and key performance indicators are unclear

• The budget process is disconnected

• There is a lack of competitive focus and strategic direction

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A Combination of Expense Reduction and Revenue Enhancement Is Required to Achieve Our Mandate

Procurement Management

Portfolio RationalizationProject Mix

Reduce Cycle Time

Reallocate Resources

Eliminate Duplication

Increase Efficiency& Effectiveness

Culture

Communication

Organization Structure

Performance Measurement Systems

Effective Decision Making

Executive Leadership & Vision

1998

1993

XXXX must take steps to transform its business

XXXX must take steps to transform its business

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Next Steps

• Complete analysis diagnostics area probes and functional studies

• Evaluate findings and identify strengths and opportunities

• Assess/impact of findings across XXXX

• Communicate conclusions throughout XXXX

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XXXX Funding is Not in Line With Competitors and Best Practice R&D Groups

XXXX must find other ways to competeXXXX must find other ways to compete

Source: 1992 Annual Reports, Goldman Sach Investor Surveys, Gemini analysis

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00